A welcome for bankrupt banks: the idiocy of market fundamentalism

The billionaire investor, Jim Rogers, has been in the news today telling anyone who’ll listen that they should sell sterling. Leaving that aside, if you wanted an indication of how out of touch market fundamentalism has become, you could do no worse than listen to the interview Rogers gave to Radio 4’s PM programme today. This brilliant investor’s solution to the current crisis is to let all the banks go to the wall. But fear not, he reassures us, things will be rough for a couple of years but then private capital will rush in and we’ll all be tickety-boo. Essentially, leave it to the market to flush out the bad debt and start from scratch again.

Maybe I’m naive but I just don’t understand how an American who must be reasonably intelligent and knows a bit about finance hasn’t heard of the Great Depression and the rather serious events that flowed from it. Certain economists and investors might think that the world works in neat compartments and that the market always provides an efficient solution when left to its own devices but the key lesson of the Depression (which the New Right forgot) was that economics is intimately bound up with politics, psychology, international relations and a whole host of other human phenomena. The massive human cost of letting the big banks collapse would have intense and unpredictable consequences for all these spheres which would, in turn, have intense and unpredictable influences on the economic outcome itself. Life isn’t an equation, Mr. Rogers.

2 Responses to A welcome for bankrupt banks: the idiocy of market fundamentalism

I agree that a complete “free market rip” would involve too much chaos, and anyway this route is just not politically possible. However the market has its merits: it is telling us (amongst other things) that there is something wrong with monster banks, headed by monstrously incompetent CEOs, with monster egos, on monster salaries. And governments are trying (to an extent that I am not happy with) to reinstate these monsters (with vague promises about better regulation, which will possibly amount to nothing). Indeed it is worse than that: the UK government has the facilitated the creation of at least one even bigger monster: the Lloyds RBS merger.

I’d like to see a bit more free market chaos than governments are contemplating at the moment. I.e. I’d like to see governments channel the bulk of stimulus money into the pockets of consumers, with less going to banks. ( There is a good article by Simon Jenkins advocating this – see http://www.guardian.co.uk/commentisfree/2009/jan/21/treasury-banking-keynes-demand ) The latter policy would mean more bank closures, which in turn would leave space for a series of small local start ups, e.g. perhaps some new small building societies.

Capitalism could be described as a continuous process of “start ups” some of which grow into monsters, which then go bust, to be replaced by more start ups. Chrysler and General Motors are classic examples of monsters about to go under. If we can deal with the social consequences of this process, I’m not against it.